Market Basket, the low-priced grocer that opened its first Maine supermarket in August, said it will consider expanding further in the southern part of the state after a strong reception at its Biddeford store.
“As opportunities present themselves, we will look at other options. We’re excited to be in Maine,” said David McLean, operations manager at Demoulas Supermarkets Inc. in Tewksbury, Mass., which owns the Market Basket chain. “We’ve heard from consumers from as far as Bangor that they come south to shop. People really see southern Maine as a shopping destination.”
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Even before Market Basket opened its Biddeford store last summer, the grocer sparked a wave of discounting among its competitors to encourage customers to stay with them. Since then, discounts at rival stores have intensified and Market Basket itself launched a yearlong promotion to cut another 4 percent from every grocery bill.
Hannaford spokesman Michael Norton said the Scarborough-based chain does not feel pinched by Market Basket’s arrival, however.
“Every new arrival tends to get a lot of attention – like when Walmart first entered the market,” Norton said. “We feel good. We’ve held up very well in Biddeford. There is a phenomenon in retail when you open a new store – people come from long distances to see it. There’s a curiosity factor. Over time, that tends to settle.”
McLean declined to say when or where Market Basket may expand, but he said the company is pleased with customer response in Biddeford.
“Biddeford has been so well received. It’s absolutely astonishing to us,” said McLean, who declined to give specific sales numbers. “We’ve all been hit by winter storms, so we’re looking forward to the summer.”
Mike Berger, senior editor of The Griffin Report of Food Marketing, a trade publication, said he expects Market Basket to expand into populated areas in Maine.
“I think the common denominator is there has to be heavy concentration of people – not a rural area,” Berger said. “They do their homework, and I think they’re looking to expand. In order to play ball, Hannaford and Shaw’s will have to lower prices wherever there’s a Market Basket.”
Market Basket’s prices are on par with Walmart’s, but analysts say Market Basket differs in one respect from Walmart: It boasts the wide aisles and diverse offerings of fresh produce, as well as gourmet and gluten-free options of a traditional or more upscale supermarket.
The Biddeford Market Basket has 60,000 products, and at 107,000 square feet, it is the largest supermarket in Maine. The Food Marketing Institute said the average supermarket has 42,686 items and 46,000 square feet.
The low prices have drawn some customers away from nearby markets.
“It’s not a big difference. But it’s always nice to save some money,” said Pat Housepian of Biddeford. “I come here because it’s convenient for me. And I know Market Basket from when I lived in Massachusetts before. I know the store. The format. The quality. And I trust it.”
Karen Martel of Saco said she normally shops at Shaw’s for routine purchases because it’s convenient, while her husband shops at Hannaford. But when it comes to shopping for a big event or special occasion that requires large quantities of food, she turns to Market Basket.
“When I have a lot to buy, I come here,” Martel said. “We think we save some money. It’s more noticeable on a big purchase.”
Analysts say Market Basket’s consistently low prices can be irksome for its rivals.
“They start out aggressive and they stay aggressive. They are a handful to deal with from a competitive standpoint,” said Jim Hertel, managing partner of Willard Bishop, an Illinois-based food retail consultant. “They’re aggressively priced enough that they are close to Walmart price levels.”
In Maine cities outside of the Biddeford market, the price variation is more acute. In the Bangor market, Hannaford’s website lists Tropicana orange juice, apples, bananas and romaine lettuce at higher prices than the Biddeford location. The Lewiston location of Hannaford also has higher prices for those items, as well as ground beef. Shaw’s and Walmart do not list prices for different stores on their websites.
Hannaford officials said pricing can vary by market, based on competitive pressures.
“We want to be the best price in the market,” said Hannaford’s Norton. “When markets get more competitive, we get more competitive ourselves. I wouldn’t attribute it to any one competitor. The grocery business is very competitive.”
Last year Hannaford and Shaw’s cut prices across all their markets in response to lower market share, and Shaw’s ended its program that gave discounts to cardholders. Hannaford has introduced special services, such as “Hannaford to Go,” which allows customers to order online and pick up bagged groceries in front of the store. The service is offered in North Windham and will expand to Yarmouth later this year.
Attempts to contact Shaw’s and Walmart officials for comment failed.
In other markets, the arrival of Market Basket has drastically changed the grocery landscape.
Last year, Shaw’s closed six stores in New Hampshire, four in Massachusetts and two in Rhode Island. Stop & Shop closed six supermarkets and three gas stations in New Hampshire.
“Stop & Shop pulled its pulled stores in New Hampshire where they were getting battered by Market Basket,” Berger said.
As more people buy food in nontraditional places – such as Walmart, Target, convenience stores, drug stores and dollar stores – the percentage of food dollars going to supermarkets has declined to roughly half of a family’s grocery budget, down from 85 percent two decades ago, according to the Food Marketing Institute.
Nationally, supermarket and grocery-store sales rose 0.4 percent to $531 billion in 2013 but are expected to decline 1.7 percent in 2014, according to a research report by IBISWorld Inc.
Of that chunk of grocery sales, Market Basket represents a tiny fraction. The company had an estimated $4.3 billion in sales in 2013, according to estimates from Supermarket News.
In comparison, Delhaize Group, the parent of Hannaford, had $17.1 billion in sales in 2013, up 1.9 percent over 2012. Shaw’s parent, New Albertson’s Inc., is owned by private equity firm Cerberus Capital Management. This month, Albertson’s agreed to buy Safeway Inc. for $9.2 billion, creating a combined company with more than $55 billion in revenues.
Walmart, the world’s largest retailer with $466 billion in sales last year, gets more than half of its sales from groceries.
Market Basket, which has been expanding rapidly in Massachusetts and New Hampshire, lately has felt the pinch of its own competitive pricing. In November, the company increased its employee bonus pool, “even though, after spending hundreds of millions of dollars on new stores and renovations in the past few years, the company’s profit margins for the year are expected to be down for the fifth year in a row and net profits are expected to be approximately flat with 2012 results and consistently down since 2008,” according to a letter to employees on a company website.
In December, Market Basket admitted that “the economy, while showing some improvement, remains tough, and in the food retailing industry, it became even more competitive.”
McLean declined to comment on the company’s financial results.
In addition to financial strain, Market Basket’s parent organization has been grappling with internal turmoil. The control of the Demoulas’ board passed from Arthur T. Demoulas to his cousin’s side of the family last year, and an independent board member resigned.
Jessica Hall may be reached at 791-6316 or at:
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Twitter: @JessicaHallPPH
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